The coal market has swung from a heavy surplus in 2020 into a tight deficit in 2021 as demand has bounced back more aggressively than anticipated. This has caused inter-basin arbitrages to open up, which is consequently driving Atlantic coal into the Pacific. Such long haul routes are ideal for Capesize vessels, which have been taking most of the marginal tonnage. These increasing coal shipments are driving the growth in Capesize demand in the Atlantic, volumes in June were around double that of last December.
Rallying energy prices, in isolation, would keep coal in high demand across Europe, however there is another dynamic at play. Rallying carbon prices have decimated the profitability of coal in Europe. The chart below shows the profitability of burning coal with and without carbon credits for the year ahead in Germany.
So as far as our data goes back, year ahead coal margins today are the highest ever without carbon. However when you factor in carbon, margins today are the lowest ever. Generators who have hedged output may still operate profitably, however with forward margins negative, future output may not be profitably locked in.
Lacklustre European coal demand continues to result in the Far East scooping up surplus Atlantic cargoes as the coal supply/demand balance between the basins dislocates.
A decade-strong Panamax market means Capes are increasingly called into the coal trade to fill the gaps. In June, Capes took a higher proportion of Atlantic coal cargoes than Panamaxes, an unusual occurrence.
Rallying energy prices indicates the world is short of energy, and in much of the world without carbon trading, coal is the cheapest form. We anticipate import demand to be especially strong in Asia, and with Newcastle coal futures surpassing $140/mt, we expect exports to continue ramping up over the coming months. However with wet weather and tighter domestic market obligations, Indonesian exports may underperform which could encourage Asian buyers to seek even more cargoes further afield. The Capesize segment is primed to benefit from incremental Atlantic coal volumes as they are increasingly tonne-mile heavy.
Rallying energy prices, in isolation, would keep coal in high demand across Europe, however there is another dynamic at play. Rallying carbon prices have decimated the profitability of coal in Europe. The chart below shows the profitability of burning coal with and without carbon credits for the year ahead in Germany.
So as far as our data goes back, year ahead coal margins today are the highest ever without carbon. However when you factor in carbon, margins today are the lowest ever. Generators who have hedged output may still operate profitably, however with forward margins negative, future output may not be profitably locked in.
Lacklustre European coal demand continues to result in the Far East scooping up surplus Atlantic cargoes as the coal supply/demand balance between the basins dislocates.
A decade-strong Panamax market means Capes are increasingly called into the coal trade to fill the gaps. In June, Capes took a higher proportion of Atlantic coal cargoes than Panamaxes, an unusual occurrence.
Rallying energy prices indicates the world is short of energy, and in much of the world without carbon trading, coal is the cheapest form. We anticipate import demand to be especially strong in Asia, and with Newcastle coal futures surpassing $140/mt, we expect exports to continue ramping up over the coming months. However with wet weather and tighter domestic market obligations, Indonesian exports may underperform which could encourage Asian buyers to seek even more cargoes further afield. The Capesize segment is primed to benefit from incremental Atlantic coal volumes as they are increasingly tonne-mile heavy.
The opinions expressed herein are the author's and not necessarily those of The Xinde Marine News.
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